Lee Rust, Florida Corporate Finance
I don’t believe that anyone would start a trip to a new destination without either a map or some directions as to how to find the place. Yet many company owners and executives operate their business without such directions. They simply act as if each day is only a repetition of the past and copy what they did during the previous day with little regard for changes to accommodate a changing world. That, however, is a prescription for stagnation, little if any growth, and mediocre results.
Instead, I believe the owners and managers of virtually every business should look ahead and plan for the future. That continuing exercise should take the form of a written, five–year Strategic Plan. In addition to developing that first Plan with input from all key managers, the Plan should then be reviewed each year and updated. That annual review would explore any changes during the past year in the company’s markets, operations, organization, and financial condition and then project into the future the effects of those changes on the company.
In a recent Strategic Plan I developed with the managers of a client company, the contents and the rationale for each Plan section included:
■ A History of the Company – You can’t understand where you’re going without knowing where you’ve been.
■ Business of the Company – You must clearly understand what business your company is in and how you can modify that business definition over time to adjust to changing conditions.
■ Corporate Structure & Ownership – This section is used to explore how the current structure and ownership relates to the future development of the company and how both might change over the coming five years.
■ Markets and Customers – This includes profiles for both the markets served by the company and its customers in those markets. Those profiles can then be used to explore appropriate market expansion and the acquisition of new customers.
■ Sales Organization, Functions, and Marketing – How you reach your markets and convert sales into orders is among the most important functions for any company.
■ Web Site Design, Use and Interactive Features – A company without a well–designed, interactive web site that addresses the information needs of its customers, employees, and suppliers is operating in a world that has passed them by.
■ Competition – You can’t compete effectively without knowing who your competitors are.
■ Growth Opportunities – What can or should you do over the next five years to reach specific revenue and profit goals.
■ Personnel and Organization – This section includes an organization chart as the company functions today and another showing how the organization might look in two to three years. All vacancies are shown with shaded blocks. The management team at any company and how that team works together should be among its major assets.
■ Accounting, Operating Procedures and Administration – This section explores internal financial controls and operating procedures and how those can be used to enhance profits. You can’t control what you can’t measure.
■ Facilities and Equipment – Matching fixed assets to revenue growth and planning for future capital expenditures is a particularly important part of cash flow analysis. You need to estimate both your future cash needs and potential sources.
■ Contingencies and Business Risks – What are those external factors which could dramatically affect your company and its operations over the next five years and over which you may have little, if any, control?
■ Management Comments – In compiling a Strategic Plan, always interview all key managers in depth. This section simply extracts, without the names, some of their comments that would be of interest to the other managers. Exclude such comments as, “John in
accounting is a bone head.”
■ Historical Financials – These, of course, show the financial results of the past.
■ Financial Forecasts – These show the anticipated results by quarter for the next two years and annually for the two following years. Financial Forecasts should be one of the principal maps to the future for any company.
■ Notes to the Financials – These simply explain certain pertinent line items in both the Historical Financials and the Forecasts. The notes also examine any significant changes over time or any non–recurring expenses.
■ Action List – This ending section condenses each action item in the Plan into a bullet list with the page reference for each. This comprehensive Action List is then used to set priorities.
A Strategic Plan as outlined above is also a form of what I call an “Operations Audit.” Most companies in the U.S. have their financial statements either reviewed or audited by an independent CPA each year. They almost never, however, think of having their operations audited, including interviews with their key managers and an examination of their efficiencies (or lack of efficiencies), business processes, organization, and internal controls. Such an Operations Audit should be more important to the future development of a company than its annual financial review.
Planning should be an integral part of every company’s development, and that planning should be distilled into a written Strategic Plan which, in turn, becomes a road map to the future. Please call me if you would like to explore such a plan for your company.
Lee Rust, Florida Corporate Finance, (407) 841–5676, deals with mergers and acquisitions, corporate sales and strategic planning, financing and operation audits.
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